Overblown fear of foreign control

The decision makers in state-owned enterprises read the headlines to inform initial opinions.

Mark Liu and Wang Lixin were not prominent names in the Australian business community in 2008 and 2009. However, they had constructive influence in the bilateral business relationship between Australia and China as they steered China Minmetals’ acquisition of assets held by OZ Minerals.

Liu and Lixin are classic examples of the new face of Chinese business; indeed, capitalism. Both were educated outside China – Liu was an Australian resident and used to speak of himself as “Australian” throughout the deal – and both saw through the prism of global business.

Neither was bound by strict Chinese protocol and neither seemed too fussed that their company was a state-owned enterprise.

SOEs have a bad name in many influential corners around the world. It is quite silly, really. Of course, their structure links them to government and creates financial borrowing opportunities that non-government-owned companies would envy. However, SOEs are run by astute people with global views.

Simply, the Lius and Lixins of the world want to do business globally and are intent on forging mutually productive relationships. They are no different from the British, American and Japanese executives who have transacted takeovers in Australia in previous waves of foreign merger and acquisition activity.

So while the remarks of Opposition Leader Tony Abbott in a speech while he was in Beijing last week were crafted carefully, and the devil was not actually in the detail (indeed the speech, read in full, was applauded by many observers), the headlines created a different set of perceptions. “Abbott warns China on takeovers,” said this newspaper, while The Australian said: “Foreign control of business not in our interests: Abbott.”

This sentiment is counter-productive for Australia. SOEs have choices where to invest, just like any business. And just like any reader, the decision-makers in the SOEs will read the headlines to inform initial opinions. With an increasing focus on political risk as part of any global company’s assessment of risk overall, the headlines, while certainly not Abbott’s speech in full, will be of concern overseas.

One of the achievements of Treasurer Wayne Swan has been to successfully chart the sensitive waters of foreign and, particularly, SOE investment.

Sure, there may be an argument about the right financial threshold for matters to be considered by the Foreign Investment Review Board, particularly as the value of assets slump in a global financial crisis world but, on any rational measure, Swan has overseen beneficial outcomes.

This month, Yancoal celebrated its merger with Gloucester Coal just three years after acquiring Felix Resources. When it bought Felix, Yancoal pledged to list on the Australian Securities Exchange. With the merger, the largest pure-play coal company is now partly in the hands of Australians.

Abbott’s speech was followed by Nationals’ leader and future deputy prime minister Warren Truss saying that a Coalition government would issue new guidelines for vetting takeovers and change the composition of FIRB to better reflect community views. The need to review the make-up of the FIRB was reiterated by Abbott on Sunday.

The FIRB is one of the unsung players in the federal bureaucracy.

With a comparatively small team, it deals with vast numbers of issues and does so in the national interest. The FIRB does not need to change to “better reflect community views”.

Indeed, if politicians went about economic policy to simply reflect community views, it would lead to chaotic policy development, which is not in our national interest.

Australia has benefited from sound decisions by the FIRB and those public servants can be proud of the part played in facilitating billions of dollars of investment, encouraging job growth and delivering investment in new technology and ideas.

Bipartisan support and messages are critical for ongoing investment by the Chinese, Japanese, Americans or any other country. Whether or not Abbott intended to deliver the headlines he did, leaders need to ensure that what they say cannot be misinterpreted. This is particularly so now, amid massive economic uncertainty. We do not want to send investment elsewhere, to Australia’s long-term cost.

Ian Smith is managing partner of corporate advisory firm Bespoke Approach and a former Liberal Party adviser.